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George Harris | senior director of business and product management, Asset Management and Alternatives, FIS
July 29, 2020
Despite a global pandemic and regulatory pressure from the securities industry, the new European Union (EU) Shareholder Rights Directive (SRD II) is still coming into force on September 3, 2020. And even if you’re based outside of the EU, you’re likely to feel the impact.
When a stock or bond has been issued from an EU member state, any organization that trades or services the investment will be in scope for SRD II. So, with the compliance deadline looming fast, how could the regulation affect you and your corporate actions process?
And more to the point, can your systems take the pace?
Speed, after all, is critical to SRD II – not least if you’re an intermediary, such as a security servicer, custodian or proxy firm.
For every in-scope corporate action, you’ll need to publish new and updated notifications throughout the intermediary chain by the end of the day you receive it, or by the morning of the next day.
You’ll also need to forward shareholder instructions without delay and get used to shorter deadlines of no more than three business days for any shareholder action. Along the way, you must be able to ready update MT565 messages with beneficial owner details – and insert the right LEI code, too.
Time will be tight. But the price for non-compliance could also be high, as EU member states continue to debate the penalties they will enforce. And in the scramble to comply, quality could be compromised.
Under SRD II, it’s actually the responsibility of the issuer to produce complete information on the security and pass it on to either the legal or beneficial owner of the security. But in the early days of the regulation taking effect, vital omissions are likely as firms rush to meet new deadlines – giving intermediaries vast quantities of investigative work to do, further down the chain.
Let’s say that an asset manager works with 30 custodians. A typical FTSE 100 corporate action that affects a lot of their investors will therefore generate 30 notifications, all in different formats. That’s a lot of data to plough through in a short space of time.
There’s also the danger that you’ll delay (or dedicate less time to) processing non-EU corporate actions, which could adversely affect your work in other markets.
In the long term, there’s only one answer – a fully automated approach to corporate actions processing. Essentially, this will allow your system to automatically determine whether an event is in scope for SRD II, before kicking off and tracking your progress through a list of time-sensitive notifications procedures and tasks.
And that puts you in the strongest position to beat the deadline, every time.
The even better news is that it’s never too late to put a new system in place for SRD II. You may have done all you can to achieve minimum compliance by September, but manual processes may still be holding you back.
Now, as SRD II settles in for the long haul, you can take the time to refine your day one compliance processes and reach for long-term efficiencies. With the right technology partner, you’ll get a solution that’s constantly developing as regulatory requirements evolve.
SRD II isn’t going anywhere fast. The race to comply may be over, but there’s still every opportunity to get your processes fully up to speed.
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